Republicans lay out major Medicare overhaul

May 1, 2011

Paul Ryan (R-Wis.) unveiled an ambitious plan to fundamentally revise the Medicare and Medicaid programs

Ryan's funding overhaul begins with proposals to lower spending in fiscal year 2012 by some $179 billion less than the Obama administration's budget plan for the coming year. The proposals call for repeal of Obama's health reform program to extend coverage to the uninsured and make steep reductions in funding for education, transportation, food safety and veterans services, among others.

The more immediate fight last month over the budget, which threatened to shut down the federal government, overshadowed attention for Ryan's proposal. The battle to remake Medicare and to tackle healthcare spending overall will be a much longer process.

Proposals include converting Medicaid to a block grant program that gives states annual fixed payments. States would receive less federal money than they do now, but would gain more control in how they provide healthcare for the poor and disabled.

Ryan plans to shift Medicare from an entitlement that covers specific benefits to a "premium support" system with set government contributions, beginning in 2022. Subsidies will help each beneficiary obtain coverage from private insurers and would start at about $8,000 per person and drop to 30% of that amount for the wealthiest individuals. And Medicare eligibility would gradually rise to age 67.

Seniors would choose among competing private insurance plans operating through a Medicare exchange. The listed plans would have to offer standard benefits and provide coverage to anyone eligible for Medicare. Premium support would vary with individual health status to compensate plans for insuring more high-cost patients. The Feds also would establish medical savings accounts for certain low income beneficiaries to help them cover out-of-pocket costs.

A main criticism of Ryan's plan is that it doesn't tackle rising healthcare costs, but assumes that lower federal payments for care will force providers to reduce rates. An analysis by the Congressional Budget Office (CBO) indicates that the proposal could reduce health coverage for millions of low-income people and would require most seniors to pay more for care.

Insurers and providers are unenthusiastic. Ryan's plan is code for "cut," according to Chet Burrell, president of CareFirst BlueCross Blue Shield, speaking at an April healthcare forum. The proposal would "cut what the government wants to pay and hope that will lower costs," Burrell said.

He noted that a very small number of Medicare dual eligibles account for a large portion of the outlays, and that if a plan doesn't deal with their needs, "you'll create a disaster."

Yet many observers praised Ryan for taking on this controversial and politically charged issue. While Democrats blasted the proposal as the wrong solution, policy experts noted that it pressured the opposition to propose an alternative plan.

Ryan has put healthcare and entitlement reform at the top of the agenda for next year's presidential campaign.